(Corrects paragraph 10 to clarify that borrowings from JPMorgan
will be $1.65 bln not $125 mln, and stock worth $750 mln not
$625 mln will be sold to North Island and Temasek)
April 20 Virtu Financial Inc said it
would buy rival KCG Holdings Inc in a $1.4 billion deal
that brings together two major players in the U.S. electronic
The deal comes at a difficult time for high-frequency
trading as low volatility squeezes the profits it can make from
Virtu's offer of $20 per share represents a 12.7 percent
premium to KCG's Wednesday close.
Shares of KCG hit a record high of $19.73 in early trading
on Thursday, while shares of Virtu were up about 8 percent.
"KCG fits perfectly with Virtu's strategic priorities to
apply our market making and technological expertise to customer
wholesale order flow and expand Virtu's growing agency execution
business," Virtu Chief Executive Douglas Cifu said in a
KCG was formed in December 2012 from the merger of New
Jersey-based Knight Capital Group -- a pioneer of electronic
market making -- and Chicago-based Getco LLC.
Virtu makes markets in 36 countries and 12,000 financial
instruments, continuously quoting buy and sell prices for others
to trade against, profiting off the bid-offer spread, using
high-frequency trading (HFT) strategies.
HFTs use sophisticated technology and algorithms to trade
stocks and other assets at near-light speed and are responsible
for around half of the volume in U.S. equities and Treasuries,
and nearly that in spot foreign exchange.
Virtu said it expects to migrate trading of the combined
company onto a single platform.
The deal will be financed through stock sale worth $750
million to private equity firm North Island and Temasek and
borrowings of $1.65 billion from JPMorgan Securities LLC.
The combined company will be led by Cifu. Robert Greifeld
and Glenn Hutchins, principals at North Island, will join the
board after the deal.
KCG also reported an 88 percent fall in first-quarter
profit, hurt by low market volatility.
The transaction is expected to close in the third quarter
after approval from KCG shareholders and regulators.
JPMorgan Securities was the lead financial adviser to Virtu,
while KCG was advised by Goldman Sachs.
(Reporting by Sruthi Shankar and Sweta Singh in Bengaluru;
Editing by Maju Samuel)